Google “Search Bias” Case: A Law and Economics Analysis

[Madhavi Singh is a is a 5th year B.A. LL.B. (Hons) student at National Law School of India University, Bangalore]

Google has in many parts of the world faced allegations of abuse of dominant position for several practices. This post is limited to the Google “search bias” case before the European Commission (EC), the Federal Trade Commission (FTC), and the Competition Commission of India (CCI). I seek to establish in this post that the different outcomes reached in all these three cases can be traced to their allegiance to the Harvard and/ or Chicago school of law and economics.

The relevant facts before the EC, CCI and FTC were similar. It had been alleged that Google was using its position of dominance in the general search services to distort competition in the market of specialised search vertical by positioning its own specialised verticals (such as, Youtube, Google Flights, Google Comparison Shopping, Google Map) more prominently. The test for determining abuse of dominant position or monopolisation in all these jurisdictions consist of three steps: (i) delineation of the relevant market; (ii) determination of the dominant position of the firm; and (iii) whether the conduct amounts to abuse of dominant position.[i] Even though the facts and the overall legal test applicable in all three jurisdictions were more or less the same, the outcomes reached were different. This was because different schools of law and economics were used in interpreting the third leg of the test.

Two schools are relevant for us. The Harvard school presumes illegality of an agreement which allows a firm to obtain market power by excluding competitors regardless of whether such conduct benefits consumers. The Chicago school, which emerged in response, believes that the only legitimate goal of antitrust laws is consumer welfare and conduct which monopolises but benefits consumers would not be illegal.

The FTC found that even though Google’s conduct might exclude competitors, that was insufficient to find a violation because the primary motive behind the measures was to improve consumer experience. The FTC’s adherence to the Chicago principle is evident from the following observation:

A key issue for the Commission was to determine whether Google changed its search results primarily to exclude actual or potential competitors and inhibit the competitive process, or on the other hand, to improve the quality of its search product and the overall user experience.

Additionally, it also noted:

While some of Google’s rivals may have lost sales due to an improvement in Google’s product, these types of adverse effects on particular competitors from vigorous rivalry are a common byproduct of “competition on the merits” and the competitive process that the law encourages.

Such reasoning is in line with the Chicago principle.

In contrast to this, the EC found Google to have abused its dominant position by giving favourable treatment to Google Comparison Shopping. The EC based its decision primarily on the exclusionary impact of Google’s conduct and in this context observed:

In order to determine whether the undertaking in a dominant position has abused such a position, it is necessary to consider all the circumstances and to investigate whether the practice tends, for example, to bar competitors from access to the market, to apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage, or to strengthen the dominant position by distorting competition.

The judgement makes it clear that overall consumer welfare is not the parameter on which the conduct would be assessed. This becomes evident when EC deals with Google’s argument regarding the conduct amounting to product improvement in the following manner:

There is no indication in the case law that alleged improvements in product designs should be assessed under a different legal standard to that developed to assess the use of a dominant position on one market to extend that dominant position to one or more adjacent markets.

The import of this was that even if the conduct is aimed at product improvement and consequently consumer welfare, it would still be tested against the same test of “exclusion of competitors” enumerated above. This position seems to be in consonance with the Harvard school.

Finally, the CCI also found Google guilty of search bias due to prominent placement of its own vertical, Google Flights. The reason for reaching this conclusion was twofold. First, the CCI observed that “unfair diversion of traffic by Google may not allow third party travel verticals to acquire sufficient volume of business” and that the consequence of Google’s search design is “either pushing down or pushing out of the verticals who were trying to gain market access.” This reason for protection of competitors is similar to that used by the EC. Second, the CCI also observed that given Google’s publicly made claims of ranking results according to relevance, its current search design which gives preference to Google Flight regardless of relevance would mislead the consumers. This second reason is what distinguishes the CCI decision from that of the EC which was solely based on protection of competitors. In fact, for most part of the judgement the CCI is cognizant of Google’s activities increasing ‘innovation’ and ‘improving user experience’ even when it comes at the cost of competitors being displayed lower in the results page. This is evidenced by the fact that it found most allegations against Google including those relating to OneBoxes, More Results, etc to be unfounded primarily on this ground. Thus, the CCI combines the principles of both the Harvard and the Chicago school. The CCI’s allegiance to either of these two schools however could only have been ascertained in a situation where it would have found Google Flight’s placement to actually be a product improvement even though it resulted in exclusion of competitors.

Therefore, it can be concluded that the differences in findings between the EC, the FTC and the CCI could be attributed to their attribution to the principles of the Harvard school, the Chicago school and a combination of both respectively.

Madhavi Singh

[i] In India: section 4, Competition Act, 2002; in the US: section 2, Sherman Act (15 U.S. Code § 2); in the EU: Art 102, The Treaty on the Functioning of the European Union.

About the author

Add comment

Subscribe to Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Recent Posts

Topics

Recent Comments

Archives

web analytics